International trade and everything related to the logistics sector in this context is a complex process that requires taking into account certain protocols and ways of managing different types of bureaucracies.
The terms and requirements that condition any international transaction are one of the key factors to carry out this type of process as efficiently as possible.
The Incoterms concept is one of the most important when talking about international trade processes.
Let’s take a look at what Incoterms is and what it means for the logistics sector.
What are Incoterms
To facilitate trade worldwide, the International Chamber of Commerce (ICC) publishes in 1936 a set of international trade terms called Incoterms.
Incoterms specify and clarify the forms of delivery, costs and obligations of each party to a sales contract.
Therefore, we are talking about a set of commercial rules established to be complied with by the parties involved in an international purchase and sale process.
One of the issues to keep in mind is that the terms included in the Incoterms are not always the same. These are adapted and modified in continuous updates to make them more recent and permeable to the current commercial reality.
This makes its content increasingly better and more responsive to the needs of the parties involved in this type of transaction.
What they are used for
Incoterms are a universal set of rules and guidelines that facilitate trade.
In essence, they provide a common language that practitioners can use to set the terms of their operations.
This unifies a crucial part of this type of transaction, making it much more fluid and efficient.
What’s new in Incoterms in 2023?
Incoterm updates are established every 10 years. For this reason, only the so-called Incoterms 2020 are currently in force for this entire decade (2020-2030).
The latest version, the ninth version, was published in September 2019 and became fully effective on January 1, 2020.
How they are classified
One of the most important and useful issues is the classification of Incoterms itself:
Group C
Also known as Indirect Delivery. Establishes and defines the place of delivery of the goods. The seller delivers the goods to a third party and thus the risks of the work to be performed.
Group C Incoterms are:
Group D
It involves everything related to Direct Delivery. The seller is responsible for transportation costs and associated risks until the goods reach their destination.
Group D Incoterms are:
- DAP
- DAT
- DDP
Group E
Delivery on departure. The seller only has to pack and package the goods. The buyer shall take the goods from the seller’s premises. All risk is borne by the buyer.
Group E Incoterms are:
Group F
In these cases the seller places the goods on the means of transport selected by the buyer, who is responsible for their payment.
Group F Incoterms are:
As you can see, all types of incoterms are differentiated by their different modes of action, both in the delivery and departure of goods and the responsibilities of such actions.
How to use them in the right way
One of the main mistakes when using this type of incoterms is to use their methodologies in domestic sales processes. Remember that Incoterms are valid for use in international transactions.
Another of the most frequent errors is the use of nomenclatures that do not exist, leading to errors when developing the different processes associated with logistics. The terms that exist are as follows:
- EXW
- FCA
- FAS
- FOB
- CFR
- VAT ID
- CPT
- CIP
- DAT
- DAP
- DDP
One of the most correct and safe ways to use Incoterms is through a logistics company with specialized personnel capable of managing all these procedures efficiently and quickly.
What happens if they are not used Are they mandatory?
All the terms included in the incoterms are of voluntary acceptance, therefore they are not obligatory.
Although they are not mandatory, it is highly advisable to make use of them so that the commercial transaction has the same unified code, capable of being more effective for the interested parties, as well as a decisive factor in the event of conflict.
Incoterms are a resource that guarantees a safe and efficient international buying and selling process.
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